Social Security retirement benefits are computed by finding the average monthly income of a worker during the highest-earning 35 years of employment, and then it plugs that amount into a formula for to determine their full benefit at Normal Retirement Age (NRA).
A person may then choose to take benefits before or after NRA, with applicable reductions or additions. There are different equations for spousal benefits, survivor’s benefits, and maximum family benefits.
Benefits for a worker, his or her spouse(s), dependents, and survivors are computed using different calculations which are stipulated by law. A worker’s benefits are computed by first finding the average monthly income from their highest earning 35 years. This is known as AIME for Average Indexed Monthly Earnings, since the official equation indexes for inflation.
This is plugged into an equation to determine the Primary Insurance Amount (PIA), which is the benefit available to someone at Normal Retirement age. There are tables which can help a person determine how much of a reduction there would be to their benefits if they started claiming benefits before NRA, or how much their benefits would increase if they deferred them past NRA.
Similar considerations apply to spousal and dependent benefits, which can be claimed while the primary working spouse is alive, and there are tables to determine the maximum household benefit which can be claimed at any one time. The maximum amount must also be considered with regards to survivors’ benefits if the primary working spouse dies.
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